There have been many discussions in recent years about the possibility of China and Russia creating a gold-backed currency, separate from the US dollar. The goal of such a currency would be to reduce their dependence on the US dollar and create a more stable international monetary system. They want to create an alternative to the US dollar being the worlds reserve currency as this status they believe provides the US with an unfair advantage as it controls the minting of the dollar.
China and Russia are two of the largest holders of gold reserves in the world, which has fueled speculation that they could be preparing to create a new gold-backed currency. In recent years, both countries have been taking steps to reduce their exposure to the US dollar, with China increasing its use of the yuan in international transactions and shedding some of its US debt holdings aka Treasury Bonds.
However, there are significant challenges to creating a new gold-backed currency. One of the biggest challenges is the lack of a well-developed market for such a currency, which would require significant infrastructure and support from other countries. Additionally, it is unclear whether other countries would be willing to adopt such a currency and move away from the US dollar.
Furthermore, creating a new gold-backed currency would require significant political and economic cooperation between China and Russia, as well as other countries that might be interested in adopting the new currency. This would be a significant challenge, given the geopolitical tensions and economic competition between these countries. With that said most major countries central back have been stockpiling gold and silver each year with new record central bank precious metals purchases becoming commonplace.
In summary, while there has been speculation, news and discussion about China and Russia creating a new gold-backed currency, it remains unclear if such a currency will be created or if it would be successful in challenging the dominance of the US dollar in the international monetary system.
Effect of a China Russian gold back currency on the dollar
If China and Russia were to create a gold-backed currency and it gained significant traction in international trade and financial transactions, it could potentially challenge the dominance of the US dollar in the international monetary system. This could have several effects on the value of the US dollar and the global economy.
First, if the use of a gold-backed currency were to increase, it could reduce the demand for US dollars in international transactions. This would lead to a decrease in the value of the US dollar relative to other currencies, including the new gold-backed currency. A weaking dollar has consequence in the US and other markets.
Second, a shift away from the US dollar could reduce the demand for US Treasury bonds, which are the primary way that the US government finances its budget deficit. This could lead to an increase in inflation, interest rates and borrowing costs for the US government, as well as for American consumers and businesses. When printing more money is easy and all of a sudden, the demand for that money shrinks its value starts to fall.
Third, if a gold-backed currency were to gain significant traction, it could potentially lead to a shift in the balance of economic power away from the United States and towards China and Russia. This could have far-reaching implications for the global economy and world order, including changes in trade and investment patterns and geopolitical power dynamics. Perhaps even war.
However, it’s worth noting that the creation of a new gold-backed currency by China and Russia is far from certain, and even if such a currency were to be created, it would take time for it to gain significant traction in the international monetary system. The US dollar has been the dominant global reserve currency for decades, and it will likely remain an important currency in international trade and finance for the foreseeable future.